The Balance Sheet lists your company’s assets, liabilities and equity at a particular point in time. While the Income Statement shows a summary of the year’s performance, the Balance Sheet shows exactly where the farm’s finances are when the document is produced. Here are some helpful points that explain the different sections of the balance sheet:
- Current assets are assets that will be used within the current year, current liabilities are the obligations that are due within a year.
- Demand loans must legally be included in short term liabilities on your official statements despite them being long term in nature. For our purposes here, include only the current portion of demand loans as current liabilities to properly calculate your ratios. The remainder should go in long term liabilities.
- Similarly, include the current portion of your long-term debts as current liabilities, and the remainder as long term.
- Long term assets are those which have useful life beyond one year, including land, buildings and equipment or machinery.
- Long term liabilities are loans that will be paid out over more than a year. This includes mortgages, equipment loans and leases.
- Other assets are those which are not farm related. Some examples might be investments or shares in a co-op.
- Equity represents the net value of ownership in your business. This section may include owners’ initial investment in the business, any additional cash injections, and retained earnings.
- Goodwill is any portion of a company’s purchase price that is higher than the sum of the net fair market value of all of the company’s assets and liabilities. Common examples include the value of a brand name, a solid customer base, good customer relations, good employee relations, and proprietary technology.
- Marketable securities are financial instruments that can be quickly converted into cash at a reasonable price. They typically have prices that are very stable, with maturities of less than one year.